Assume that a four per cent decrease in income results in a two per cent increase in the quantity demanded of a good.The income elasticity of demand for the good is:
A)negative and therefore the good is an inferior good
B)negative and therefore the good is a normal good
C)positive and therefore the good is an inferior good
D)positive and therefore the good is a normal good

Question

Quizplus · Accepted Answer

The income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. Here, a decrease in income leads to an increase in quantity demanded, indicating a negative income elasticity of demand. This characteristic is typical of inferior goods, as demand for them increases when income decreases.

Assume That a Four Per Cent Decrease in Income Results